Ministers have accused Sir Keir Starmer and Rachel Reeves of misleading the Cabinet by suggesting there was a hole in public finances to bolster the case for tax hikes in the Budget.
In several meetings, the Chancellor highlighted a downgrade in productivity forecasts as she tried to persuade ministers to support tax hikes, according to The Times.
After a Downing Street press conference in which Ms Reeves suggested she was preparing to break Labour’s manifesto promise not to raise the basic income tax rate, the Chancellor told ministers on November 4 that the country was facing challenges with “tariffs, unstable borrowing costs, inflation and long-term productivity”.
She also told colleagues that she “had to respond to the world as it is now, not as she might wish it to be”.
Ms Reeves highlighted a downgrade in productivity forecasts as she tried to persuade ministers to support tax hikes
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REUTERSHowever, the Office for Budget Responsibility (OBR) had already told the Chancellor privately that the downgrade had been more than offset by tax revenues, which were higher than initially believed.
On October 31, the OBR informed Ms Reeves that she had a £4.2 billion surplus, but this information was not disclosed to the public or other ministers.
It is understood that only Sir Keir and the Chancellor were aware of the improved forecasts.
A week later, proposals to increase the basic income tax rate were dropped.
The OBR had already told the Chancellor privately that the downgrade had been more than offset by tax revenues
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UK GOVERNMENTOne Cabinet minister told The Times: “Why did Keir and Rachel allow the country to believe for so long that we would break our manifesto by putting up income tax by 2p when they would have known that wasn’t true?
“At no point were the cabinet told about the reality of the OBR forecasts.
“Had we been told, we might have been in a position to advise against setting hares running on income tax and giving the public the impression we are casual about our manifesto commitments.
“The handling of this budget has been a disaster from start to finish.”
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It is understood that only Sir Keir and the Chancellor were aware of the improved forecasts
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Another told the newspaper: “The Treasury’s operation is not exactly cutting-edge.
“The argument about living in uncertain times and needing more headroom makes sense but the way she presented it, by saying there’s a big hole we need to fill, is frustrating.
“We had this hokey-cokey about income taxes going up and then not going up.”
Another minister said that the Prime Minister and the Chancellor appeared “weak and incompetent” in the aftermath of the Budget’s tumultuous release.
On Sunday, Ms Reeves has rejected claims that she misled the public about the state of Britain’s finances.
She told the BBC: “That [the £4.2 billion surplus] would have been the lowest surplus that any chancellor ever delivered against the fiscal rules.
“I was clear I wanted to build up that resilience, and that is why I took those decisions.”
The Chancellor also said that the Prime Minister was fully briefed on the OBR’s forecasts, noting they met regularly to discuss the Budget.